Key takeaways

  • Australia and the world is in a period of transition when it comes to energy production.
  • A few years ago, some predicted a death spiral for electricity retailers but the reality is more nuanced.
  • Innovations in technology will lead to an energy future whose details remain unclear, but will ultimately be beneficial.

In the late 1800s, the fledgling electricity industry was caught in a fierce debate known as the War of Currents.

A lot of money was on the line, as well as the potential to shape the future of America’s electricity system. The press had a field day. Who would win – the supposedly dangerous alternating current (AC) backed by Nikola Tesla and George Westinghouse? Or the harder to scale, direct current (DC) championed by Thomas Edison?

(Spoiler: AC won).

Society is moving into another period of electrical ambiguity, this time around the dominance of fossil fuel powered plants versus renewable energy sources. Like Edison, it would be easy to instigate negative arguments around the merits of each. However, we need to be at peace with this uncertainty as technologies and attitudes mature and shift.

Supply and demand

In 2014, PwC predicted a future that would see distributed energy as normal and a steady transition to a new energy world. It was seen as wildly unlikely and it was ultimately wrong – it happened twice as fast.

At the same time, there was talk of a concept that would end the electricity network and its retailers – the so-called ‘death spiral’. It was assumed that as the public realised the cost-benefits of photovoltaic panels on their roofs and batteries in their homes, they would disconnect from the grid.

As some moved off-grid, the price of power to those that remained, footing the bill of infrastructure and transportation, would rise. In turn, that increase would cause more people to leave for their own solar systems.

It is no longer thought that renewable energy will be the death of the grid. Some even believe that the golden age of the grid is ahead of us. However, the impact of digital innovation and an emerging sharing economy of energy is affecting change.

With the recent publication of the Independent Review into the Future Security of the National Electricity Market¹, (the Finkel Review), it appears that the days of fossil-fuelled energy are behind us. Victoria’s Hazelwood coal power station closed in 2017, faced with untenable costs to upgrade to a cleaner and more modern system². South Australia’s Port Augusta coal plant folded to increasing renewable competition³.

energy problems

It would be easy to see these closures as a win for renewable energy but, while they could supply Australia’s needs4, wind and solar energy are spotty in their delivery. If the sun isn’t shining or the wind dies down, energy production decreases. This is a significant problem because peak consumption time in Australian cities is around 7pm in summer, just after the sun begins to set.

When the supply of renewable goes down, the load required of the increasingly diminishing fossil fuel plants goes up. In the event of a heatwave the amount required of a traditional power plant can suddenly become unsupportable.

Blackouts in South Australia in early 2017 occurred when the demand for power during a heatwave increased to levels that threatened the system’s stability5 and New South Wales strove not to follow their example6. The Australian Energy Market Operator (AEMO) shut down power to individuals and businesses in order to stop the entire grid going down – something that happened the previous year, tangentially caused by a drop in wind-farm energy7.

Yet Australians are increasingly demanding renewable energy sources. Australia also remains a signatory to the 2016 Paris Agreement on climate change, committing it to reducing carbon emissions. What then is the answer? Increasingly, it is digital technology.

Stability, reliability and
affordability with innovation

A fluctuating source of energy requires a way to smooth out the peaks, such as storing it for later use. Until recently the cost of storage was prohibitive but falling technology prices, along with increasing sophistication, is changing that8.

This year, the South Australian Government awarded Elon Musk’s company Tesla and French wind farm developer Neoen the tender to build the world’s largest battery system9. The 100-megawatt battery will provide backup during periods of high demand and marks a turning point in Australia’s renewable energy market.

Currently, the cost of a battery for the home is around AU$10,000. Already a substantial decrease from previous years, some believe this could drop by almost 40% in the near future10 and Australians are expected to install 20,000 batteries in 201711.

Around half of the energy produced by rooftop installations is not used by homeowners, instead sold back to energy retailers at around 5-7 cents per kilowatt-hour (kwH). Energy costs substantially more to buy, however, at closer to 30c per kwH – so understandably, many perceive the system to be unfair.

The cost is due in part to transferring electricity across vast distances. So what would happen if this wasn’t an issue? Peer-to-peer trading and energy management systems are two digital technologies addressing this.

Selling electricity
to the neighbours

Consider a future where most people have solar panels and batteries in their homes. Being largely self-sufficient, it’s likely that these people will want more control to go with their energy ownership. For instance, whether they use all their energy, or whether they sell portions of it to their neighbours.

Some will be happy managing these transactions, but many will look to energy management systems and algorithms to have it happen automatically. Energy management is not likely to generate revenue in its own right but as a platform-service it will have a huge impact in the way energy is traded domestically and overseas.

From this month, Origin Energy is teaming up with blockchain energy market provider Power Ledger to trial the feasibility of peer-to-peer energy trading between neighbours12. The use of blockchain, could allow for a system secure enough to manage the transfers.

When electricity is coming from next door, it becomes a lot cheaper. It also gets that little bit more exciting when it is something users can take personal control of. Suddenly people are in charge of their energy and not the other way around.

The future
of energy

With the use of energy trading and home and commercial battery use, renewable energy becomes much more (somewhat ironically) sustainable. This leaves traditional energy suppliers with a challenge: how to respond. For new entrants, it provides opportunities.

Rather than the complete death of fossil fuel use or the abandonment of a national power grid, It’s likely Australia will see mixed-use cases occurring dependent on circumstance.

Remote communities are likely to embrace full self-sufficiency, investing in micro-grids and renewable energy, while regional communities push towards self-sustainable systems yet remain tethered to the traditional grid for stability and security.

Cities and urban areas, with their increased demand and strategically crucial infrastructure, will likely stay on the grid, at least in the short to medium term. However, the relatively low cost of battery deployment at commercial and utility scale8 will no doubt be attractive to government.

What’s the outlook
for renewables?

Before the War of Currents, Edison was at the forefront of a different energy ‘crisis’, turning the public against the use of ‘dangerous’ gas lighting (to promote his new electric lighting).

He similarly promoted the danger of AC current to all who would listen. The fractious debate was no doubt frustrating to industry and public alike. However, it served to inspire efficiencies and safety mechanisms in AC power as well as the provision of cleaner gas.

We don’t yet know how exactly the renewable energy vs fossil fuel transition will play out. Instead of placing bets one way or the other, we need to embrace the unknown and trust that an investment in digital innovation will ultimately result in a new and better energy future for everyone.



Mark Coughlin

Mark leads PwC’s Australian Energy, Utilities and Resources practice.

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